Arab banker warns of trade risk over Australia's stance on Israeli settlements in East Jerusalem

The head of Arab Bank Australia has warned trade with the Middle East will suffer after the Federal Government's decision to stop referring to Israeli settlements in East Jerusalem as "occupied territories".

He says Australia's recent move is still being absorbed in the Middle East, but urgently needs to be clarified.

"It's quite obvious that the Middle East is not going to boycott Australia, well that's my view, but over time it will affect trade ... if the policy isn't clarified and the commentary that's recently been made isn't elaborated on," Mr Rizk said.

The banker says it is difficult to put a dollar figure on how much potential investment could be lost, but the risks for Australia are significant.

"It's really the potential side of it too that you've got to look at the upside," he said.

"I was listening to the Prime Minister today at the CEO forum here in Canberra and it's quite obvious a country like Australia needs investment in infrastructure and that sovereign potential for investment here."

Australia has already been warned that it could face trade sanctions as a result of its decision to refer to East Jerusalem as "disputed", rather than "occupied".

The head of the General Delegation of Palestine to Australia, Izzat Abdulhadi, says he is seeking further clarification about the Federal Government's approach.

"I think this is the sort of strong indication of the new policy of the Australian government towards not only East Jerusalem now as a final status issue, but also for all occupied territories. This is totally unacceptable" Mr Abdulhadi said on Tuesday.

Foreign Minister Julie Bishop says she will meet ambassadors from Arab nations on Thursday to reaffirm the Government's commitment to the two-state solution in the Israeli–Palestinian conflict.

"There is no new policy. The Government has not changed our policy which is a commitment to a two-state solution where the Israelis and Palestinians can live in peace behind internationally recognised boundaries," she said.